Report on operations for the 9 months ended september 30, 1997

REPORT ON OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 * Net sales: SEK 32,999 million (34,250) * Stronger market - delivery volumes up 9 percent * Income after net financial items: SEK 1,753 million (1,922) * Net income after tax: SEK 1,155 million (1,266) * Income per share: SEK 3.60 (3.95) ET SALES AND EARNINGS The Group's net sales for the period amounted to SEK 32,999 million, compared with SEK 34,250 million for the corresponding nine months of 1996. Net sales in the corresponding period of 1996 included SEK 1,721 million from the divested company, Stora Building Products. Income after net financial items totaled SEK 1,753 million (1,922). Income was adversely affected by lower prices in an amount of SEK 3,100 million. Income was improved by increased delivery volumes, currency changes and lower costs in amounts of SEK 1,400 million, SEK 800 million and SEK 900 million, respectively. Income was adversely affected by the extensive program of investments in Skoghall and Skutskär (Sweden) and Port Hawkesbury, Canada. The negative effects deriving from the investment program will now gradually subside. The Group's financial net declined to an expense of SEK 612 million (expense: 400), due to increased net indebtedness resulting from the extensive program of investments. No interest was capitalized in connection with ongoing investment projects. Net income, after tax and minority shares, amounted to SEK 1,155 million (1,266). Tax for the period was SEK 578 million (650), which corresponded to 33 percent (34) of income before tax. Group income per share for the first nine months of 1997 was SEK 3.60 (3.95). On a rolling full-year basis the corresponding figure was SEK 4.50, compared with SEK 4.85 for full-year 1996. The return on capital employed, after deductions for tax liabilities, for the period October 1996 to September 1997 was 7 percent, compared with 7 percent for full-year 1996. The corresponding figures for the return on shareholders' equity were 5 percent and 5 percent, respectively. The operating cash flow was negative and amounted to a deficit of SEK 284 million (+3,668), of which currency translation accounted for a gain of SEK 353 million (+1,292) and divestments/acquisitions for a loss of SEK 500 million (+967). After deductions for net financial items, taxes and dividends, the Group's interest-bearing net indebtedness rose by SEK 2,975 million. Third quarter Group net sales for the third quarter totaled SEK 10,976 million (10,209), compared with SEK 10,682 million and SEK 11,341 million for the first and second quarters, respectively, of 1997. Income after net financial items amounted to SEK 529 million (312), a slight decrease on earnings of SEK 560 million and SEK 664 million for the first and second quarters, respectively, of 1997. Seasonally, the third quarter is the weakest quarter for the power and forest product areas. In addition, income for this quarter was adversely affected because most of the year's planned maintenance and investment stoppages occurred during the third quarter. These applied mainly to the pulp, fine papers and board and packaging paper product areas. The total decline in earnings due to these factors was SEK 175 million. Income per share was SEK 1.10 (0.65), compared with SEK 1.15 (2.50) and SEK 1.35 (0.80) for the first and second quarters, respectively, of 1997. Market and deliveries Markets in Europe improved even further during the period. A contributing factor was the strong USD exchange rate, which led to increased exports from Europe. However, the trend varied from country to country. Domestic demand increased slightly in Germany. This, combined with increased exports as a result of the weaker DEM, led to a strengthening of the German economy. The trend in the U.K. was strong, with good domestic demand. The buoyant U.S. economy remains unchanged, with good demand. In terms of volumes, the markets for sawn timber, paper and board improved, compared with the corresponding period in 1996. Order bookings strengthened and the order backlog for most of the Group's products varies from 5 to 7 weeks. STORA's deliveries of pulp, paper and board increased by 9 percent to 5,171,000 tonnes (4,725,000). Expressed in tonnes, finished goods inventories remained unchanged from the level at year-end 1996. Translated into SEK, sales prices for the Group's paper and board products were about 10 percent lower than the first nine months of the preceding year. Power Electricity consumption was lower than during the preceding year, mainly as a result of the mild winter. On the other hand, consumption since March was higher than during the corresponding period of 1996. Strong precipitation during September led to normal reservoir levels in the Scandinavian system. The improvement in earnings was mainly due to increased hydro power production and to the effects of the refinancing of Kopparkraft. Forest Supplies in the wood market increased, particularly in the case of saw timber. Indirectly, the increased supply of saw timber resulted in a greater availability of pulpwood and chips. STORA's wood deliveries to Swedish units rose by about 10 percent compared with the preceding year. Felling in the Group's own forests corresponded to a normal extraction for the period, which was more than in the first nine months of 1996. Pulpwood prices were about 15 percent lower than during the preceding year, while spruce timber prices were 15 percent higher. The increase in volumes coupled with lower felling costs led to an improvement in earnings. Sawn timber Demand was normal during the period but a surplus of spruce led to a significant change in the market. STORA's deliveries declined during the third quarter to 155,000 m³ (168,000), compared with 207,000 m³ during the second quarter. Accumulated, deliveries totaled 549,000 m³ (488,000). Average price levels for pine were about 15 percent higher than in the preceding year but remained unchanged during the third quarter. The corresponding average price increase for spruce was 30 percent, but prices fell during the third quarter. The improvement in earnings for sawn timber operations was primarily due to increased volumes and improved efficiency in the sawmills. The price increases for finished goods were neutralized by higher timber prices. Pulp Norscan paper pulp inventory levels increased slightly during the summer but declined during September. Levels at the end of the period totaled 1.6 million tonnes. European paper producers have somewhat higher stocks of pulp than is considered normal. Wage negotiations are in progress in Canada and a strike is affecting one pulp mill. Pulp price levels have gradually strengthened and are now USD 610/tonne for long-fiber pulp and ECU 510/tonne for short-fiber pulp. A number of suppliers have announced price increases to USD 650/tonne and ECU 540/tonne, respectively. Pulp operations continued to show an accumulated loss but the deficit was lower than for the corresponding nine months of 1996. The improvement was due to lower wood costs and higher sales prices. Third-quarter earnings were positive as a result of the price increases. During the quarter operations at the mill in Skutskär (Sweden) were suspended for a major maintenance overhaul. The most severely affected market is the sulphite pulp segment in Canada, where the Group's unit continued to show a loss, SEK 176 million on an accumulated basis. Due to the investment project in Port Hawkesbury, pulp production was subject to a slightly more than two-week stoppage during the third quarter resulting in a loss for the quarter of SEK 58 million. Printing papers Total deliveries of newsprint in Western Europe rose by 2 percent, and in the U.S. by slightly more than 4 percent. STORA's total deliveries rose by slightly more than 5 percent. The increased shipments resulted in high capacity utilization in both Europe and North America. It is estimated that prices in Europe will rise as of year-end 1997. In North America, prices increased steadily and levels are currently higher than in Europe. A further increase of USD 35-40/tonne has been announced in the U.S. and is expected to have been established before the end of the current year. Based on the current USD exchange rate, this means that the price in North America will be significantly higher than the current price in Europe. Total deliveries of SC papers in Europe rose by 5 percent. STORA's total deliveries increased by 13 percent. The U.S. market continued to experience favorable demand during the third quarter. Demand for SC paper increased, due to the strained delivery situation with regard to LWC paper, among other factors. This led to increased capacity utilization. Price increases are anticipated following year-end 1997. Total deliveries of LWC paper in Western Europe rose by 31 percent. STORA's total deliveries increased by 28 percent. Volume increases led to increased order backlogs and full capacity utilization at present. Prices have improved gradually during the year, with additional increases as of October. Additional price rises are anticipated following the end of the year. In terms of offset printing grades, the price in Germany is currently DEM 1,450 per tonne. Earnings deteriorated in relation to the preceding year, due mainly to lower sales prices. The improvement in earnings during the third quarter, compared with the preceding quarter, is explained by higher volumes. Technical office papers Total deliveries of carbonless paper to Western Europe declined during the third quarter and accumulated over the year to date are now at the same level as in 1996. STORA's deliveries rose by nearly 1 percent. Following the price increases implemented at the end of 1996 and during early 1997, price levels have remained stable. Currently, additional price rises are being implemented. The increases have resulted in an improvement in earnings. Total deliveries of thermal papers in Europe increased by 6 percent. STORA's deliveries in Europe declined by 7 percent, due to a fixed-price policy. Earnings improved as a result of the price increases implemented gradually during the latter half of 1996 and during 1997. Earnings for technical office papers were positive. Fine papers Compared with the first nine months of 1996, deliveries to European markets increased. Uncoated fine papers rose by 6 percent and coated fine papers by 10 percent. The volume trend is due to some inventory build-ups at customers. STORA's total deliveries to date this year have increased by 16 percent. Volumes during the third quarter were in line with the preceding quarters. Order bookings remained favorable, with high capacity utilization as a result. Expressed in SEK, average prices in the third quarter were somewhat lower than during the preceding quarter due to currency effects. The previously announced price increase will have an approximately 5- percent effect as of October. Compared with the preceding year, the improvement in earnings to date this year is attributable to higher volumes. Third-quarter earnings were adversely affected by a number of maintenance stoppages and to gradually increasing pulp prices. Wholesale operations The percentage of inventory sales increased as a result of certain direct shipments now being invoiced directly by the mills. Average price levels remained unchanged during the third quarter. Price increases of 5-8 percent were implemented as of October. Accumulated earnings were slightly better than in the preceding year, while third-quarter earnings remained at the same level as in the preceding year. Board and packaging paper Delivery increases for board and packaging paper in Europe were 8 percent for packaging board, 7 percent for White Top Liner (WTL) and 5 percent for fluting. During the first half of the year, there were some inventory build-ups in the customer segment which contributed to the high increases. Sales prices in SEK were lower than for the corresponding period of the preceding year. Following a weak trend at the beginning of the year, prices rose towards the end of the third quarter. The start-up and subsequent operations of the new board machine, KM8, have been carried out with a good level of work on hand. The test runs of new products and trimming-in of the new machine had an adverse effect on earnings during the first half of the year, as did a scrapping charge of SEK 50 million in connection with the start-up of the new bleaching plant during the second quarter. Third-quarter earnings were negatively affected by planned maintenance stoppages, particularly in Gruvön (Sweden). As a result of these factors, earnings were down on the preceding year. Earnings for the third quarter remained unchanged, compared with the preceding quarter. Financial operations Earnings were generated in interest-rate and currency markets, as well as in share-related instruments. Earnings declined during the third quarter, but accumulated earnings for the nine months as a whole remained favorable. The high level of earnings reported for the second quarter derived from liquidated long-term investments. Earnings do not include interest on shareholders' equity or internal margins. Financial position The Group's equity/assets ratio was 46.1 (50.1) percent and the debt/equity ratio was 0.52 times (0.38). At year-end 1996, the corresponding figures were 48.0 and 0.42. Interest-bearing net indebtedness amounted to SEK 15,388 million (11,240), compared with SEK 12,413 million at year-end 1996. Interest-bearing net indebtedness included pension liabilities of SEK 3,854 million (3,913) and SEK 3,949 million, respectively. At the end of the period, the Group had granted but unutilized credit lines corresponding to SEK 10.7 billion. Capital expenditures Investments in plant during the period totaled SEK 4,713 million (5,208), of which SEK 2,471 million (3,691) was in Sweden. Depreciation according to plan amounted to SEK 2,790 million (2,658). The SC magazine paper machine project in Nova Scotia (Canada) is proceeding according to plan. To date, SEK 2,230 million has been invested in this project. As part of STORA's goal to establish operations in emerging markets, the decision was taken during the period to build a pulp plant jointly with the Brazilian company Odebrecht SA in the Brazilian state of Bahia. The new mill will have an annual production capacity of 750,000 tonnes. The mill's wood raw material needs will be completely met by the facility's own plantations. Shareholders' equity in Veracruz will amount to USD 600 million, of which STORA's share will be USD 300 million. To date, STORA has contributed USD 110 million and it is estimated that the balance will be contributed in the form of USD 40 million during 1998 and USD 150 million during 1999. Personnel The average number of employees in the Group during the period was 20,609 (23,487). During 1996 the number was 22,716. Most of the decrease was attributable to the sale of Stora Building Products and of the mill in Arnsberg (Germany). Other The sale of the board mill in Arnsberg, as reported in the second quarter, resulted in a capital loss of SEK 150 million and in STORA's net indebtedness being reduced by SEK 320 million. During earlier quarters, the operations of the CTMP fluff pulp production in Skoghall, Sweden, were also terminated, as was the production of board at the plant in Corbehem, France. The PM1 SC paper machine at the mill in Langerbrugge (Belgium) was shut down and negotiations are now in hand regarding the closure of this machine. During the third quarter, the production of MG kraft paper in Skoghall was terminated. In addition, STORA's share (22 percent) in the paper wholesaler, Classic Papers, in the U.K., was sold. The decision has been taken to phase out sulphite pulp production in Port Hawkesbury in connection with the start-up of the new paper machine for the production of uncoated magazine paper. Falun, October 27, 1997 STORA KOPPARBERGS BERGSLAGS AB Lars-Åke Helgesson President and Chief Executive Officer This interim report has not been subject to examination by the Company's auditors. The report on the fourth quarter and on operations during full-year 1997 will be published on January 30, 1998. The Annual General Meeting for fiscal year 1997 will be held on March 12, 1998. The interim report on the first quarter of 1998 will be published on April 21, 1998. The interim report on the second quarter of 1998 will be published on July 21, 1998. The interim report on the third quarter of 1998 will be published on October 21, 1998. CONSOLIDATED INCOME STATEMENT (SEK m) January - September Full year 1997 1996 1995 1996 Net sales 32,999 34,250 43,261 45,161 Operating expenses - 27,694 - 29,311 - 33,836 - 38,777 Nonrecurring items - 150 41 315 - 37 Planned depreciation - 2,790 - 2,658 - 2,754 - 3,488 Operating income 2,365 2,322 6,986 2,859 Net financial items - 612 - 400 - 788 - 510 Income after net financial 1,753 1,922 6,198 2,349 items Taxes - 578 - 650 - 2,045 - 770 Minority share - 20 - 6 - 45 - 19 Net income for the period 1,155 1,266 4,108 1,560 Income per share, SEK 3.60 3.95 12.80 4.85 Cash flow from operations per 0.70 8.40 9.40 5.20 1) share , SEK 1) Excluding the effect of major corporate acquisitions and divestments. ANALYSIS OF FINANCIAL NET (SEK m) January - September Full year 1997 1996 1995 1996 Net interest items - 636 - 649 - 901 - 824 Interest difference, 24 249 113 314 translation hedge Net financial items - 612 - 400 - 788 - 510 NET SALES AND OPERATING INCOME BY PRODUCT AREA (SEK m) Net sales Oper. income/loss January- September January - September 1997 1996 1995 1997 1996 1995 Power 1,192 1,104 1,066 130 - 116 - 23 1) Forest 4,221 4,100 4,896 559 447 525 Sawn timber 1,265 1,029 1,252 44 - 101 - 9 Pulp 3,565 3,294 5,615 - 199 - 512 1,622 Eliminations - 1,953 - 1,712 - 2,130 - - - Base products 8,290 7,815 10,699 534 - 282 2,115 Printing papers 10,623 11,181 12,826 1,164 2,275 2,251 Technical office 1,532 1,406 1,737 35 - 195 - 11 papers Fine papers 5,890 5,377 7,505 520 25 1,195 Wholesale operations 4,264 4,515 5,436 65 52 178 Eliminations - 1,273 - 1,419 - 1,705 - - - Graphic papers 21,036 21,060 25,799 1,784 2,157 3,613 Board and packaging 7,104 6,897 8,222 390 721 1,471 paper Financial operations - - - 322 132 131 Divested units - 1,721 3,010 - - 67 - 69 Nonrecurring items - - - - 150 41 315 Amortization of surplus - - - - 265 - 268 - 306 values ) Other - 3,431 - 3,243 - 4,469 - 250 - 112² - 284 Total 32,999 34,250 43,261 2,365 2,322 6,986 1)Operating income includes capital gains in connection with the divestment of land in amounts of SEK 31 million, SEK 30 million and SEK 23 million, respectively. 2) Includes reversal of internal inventory gain in an amount of SEK 150 million. CONSOLIDATED BALANCE SHEET (SEK m) September 30, December 31, 1997 1996 Assets Fixed assets 44,968 42,864 Current assets 14,459 14,068 Interest-bearing assets 4,210 5,101 Total assets 63,637 62,033 Liabilities and shareholders' equity Shareholders' equity 29,071 29,485 Minority interests 255 269 Tax liabilities 7,037 6,935 Interest-bearing liabilities 19,598 17,514 Operating liabilities 7,676 7,830 Total liabilities and 63,637 62,033 shareholders' equity Interest-bearing net 15,388 12,413 indebtedness Debt/equity ratio, multiple 0.52 0.42 Equity/assets ratio, % 46.1 48.0 KEY RATIOS January- Oct Full Oct September '96- year '95- 1997 1996 Sep '97 1996 Sep '96 Income for the period, 1,155 1,266 1,449 1,560 2,525 SEK m Return on shareholders' - - 5 5 9 equity, % Return on capital employed after deduction of tax - - 7 7 10 liabilities, % Income per share, SEK 3.60 3.95 4.50 4.85 7.85 Sep 30, Dec 31, Sep 30, 1997 1996 1996 Capital employed, SEK m 51,751 49,102 47,540 Capital employed excl. tax 44,714 42,167 40,595 liabilities, SEK m Net indebtedness, SEK m 15,388 12,413 11,240 Equity/assets ratio, % 46.1 48.0 50.1 Debt/equity ratio, multiple 0.52 0.42 0.38 Reported shareholders' equity per 91 92 91 share, SEK Adjusted shareholders' equity per 132 133 125 1) share , SEK 1)Including surplus values in forest and power assets. CHANGE IN INTEREST-BEARING NET INDEBTEDNESS (SEK m) January - September 1997Jan-Sep Ongoing Divest- Transl. Total 1996 opera- ments/ diff,. Total tions acqui- foreign sitions units rating income 2,515 - 150 2,365 2,322 Oper.receivables/ - 530 59 31 - 440 664 liabilities Inventories - 134 75 35 - 24 1,335 nvestments - 4,713 - 4,713- 5,208 epreciation 2,790 2,790 2,658 Other changes in 1) net fixed assets - 65 - 484 287 - 262 1,897 h flow from operations - 137 - 500 353 - 284 3,668 et financial items - 612 - 612 - 400 Taxes - 343 - 133 - 476- 2,483 Minority interests - 27 - 7 - 34 - 1 ividend - 1,206 - 1,206- 1,206 Change in shareholders' equi- excl. income for the - 363 - 363 - 63 period nge in interest-bearing net ebtedness - 2,325 - 500 - 150- 2,975 - 485 1) Including SEK 820 million share investment in Veracruz SA, Brazil. QUARTERLY DATA Consolidated income statement (SEK m) 1995 1996 1997 III IV I II III IV I II III Net sales 13,990 13,845 12,430 11,611 10,20910,911 10,682 11,341 10,976 Operating -10,763 -10,949 -10,163 -10,239 -8,909-9,466 - 9,037 - 9,343 - 9,314 expenses Nonrec. items 43 - 14 - 71 - 30 - 78 - - 150 - Planned - 898 - 894 - 912 - 915 - 831 - 830 - 920 - 962 - 908 deprec. Operating 2,372 1,988 1,355 528 439 537 725 886 754 income Net financial - 242 - 166 - 140 - 133 - 127 - 110 - 165 - 222 - 225 items Income after net financial 2,130 1,822 1,215 395 312 427 560 664 529 items Taxes - 699 - 560 - 407 - 132 - 111 - 120 - 185 - 219 - 174 Minority - 8 - 3 - 6 - 5 5 - 13 - 6 - 6 - 8 share Net income for the period 1,423 1,259 802 258 206 294 369 439 347 Net sales by product area (SEK m) 1995 1996 1997 III IV I II III IV I II III Power 267 455 525 299 280 465 545 334 313 Forest 1,415 1,680 1,545 1,352 1,203 1,328 1,508 1,518 1,195 Sawn timber 378 488 304 387 338 441 409 482 374 Pulp 2,004 1,522 1,120 1,110 1,064 946 1,033 1,248 1,284 Eliminations - 675 - 688 - 633 - 540 - 539 - 624 - 666 - 664 - 623 Base products 3,389 3,457 2,861 2,608 2,346 2,556 2,829 2,918 2,543 Printing 4,896 4,575 3,731 3,651 3,799 4,038 3,196 3,618 3,809 papers Tech. off. 540 531 541 441 424 457 526 516 490 papers Fine papers 2,051 2,002 2,106 1,706 1,565 1,874 1,999 2,005 1,886 Wholesale 1,615 1,730 1,728 1,465 1,322 1,382 1,462 1,458 1,344 oper. Eliminations - 564 - 566 - 678 - 366 - 375 - 456 - 442 - 428 - 403 Graphic 8,538 8,272 7,428 6,897 6,735 7,295 6,741 7,169 7,126 papers Board and pack- aging paper 2,590 2,272 2,510 2,215 2,172 1,974 2,233 2,497 2,374 Other - 1,445 - 1,134 - 1,195 - 1,004- 1,044 - 914 - 1,121 - 1,243 - 1,067 Adjusted net sales 13,072 12,867 11,604 10,716 10,20910,911 10,682 11,341 10,976 Divested 918 978 826 895 - - - - - units Total 13,990 13,845 12,430 11,611 10,20910,911 10,682 11,341 10,976 Adjusted operating income/loss by product area (SEK m) 1995 1996 1997 III IV I II III IV I II III Power - 93 105 79 - 82 - 113 101 180 - 3 - 47 Forest 165 272 139 161 147 207 186 233 140 Sawn timber - 60 - 40 - 34 - 20 - 47 4 8 24 12 Pulp 695 386 - 35 - 392 - 85 - 191 - 166 - 72 39 Base 707 723 149 - 333 - 98 121 208 182 144 products Printing 1,115 1,073 832 696 747 455 223 396 545 papers Tech. off. - 11 - 41 - 17 - 61 - 117 - 60 8 16 11 papers Fine papers 277 263 97 6 - 78 152 244 208 68 Wholesale 32 24 27 7 18 22 24 23 18 oper. Graphic 1,413 1,319 939 648 570 569 499 643 642 papers Board and pack- aging paper 392 187 371 232 118 - 22 127 129 134 Financial operations 49 108 64 51 17 34 56 255 11 Amortization of surplus - 101 - 97 - 91 - 89 - 88 - 88 - 89 - 89 - 87 values Other - 86 - 172 - 23 - 39 - 50 1 - 76 - 84 - 90 Adjusted operating 2,374 2,068 1,409 470 469 615 725 1,036 754 income Oper. 18.2 16.1 12.1 4.4 4.6 5.6 6.8 9.1 6.9 margin,% Divested - 45 - 66 - 54 - 13 - - - - - units Nonrec. 43 - 14 - 71 - 30 - 78 - - 150 - items Reported oper- ating income 2,372 1,988 1,355 528 439 537 725 886 754 Net financial items: Net interest - 282 - 246 - 214 - 227 - 208 - 175 - 189 - 222 - 225 items Interest difference, translation 40 80 74 94 81 65 24 - - hedge Net - 242 - 166 - 140 - 133 - 127 - 110 - 165 - 222 - 225 financial items Reported income after net 2,130 1,822 1,215 395 312 427 560 664 529 fin. items DISTRIBUTION OF SHARES Series A Series B Total Unrestricted 261,797,100 59,706,625 321,503,725

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